Building up to another construction boom

Photo / Northern Advocate

The $8.5 billion building sector is about to make a big recovery and hit boom levels again but in the meantime, Government spending is keeping it going, reports show.

Dominick Stephens, Anne Boniface and Michael Gordon of Westpac Institutional Bank issued a forecast yesterday saying the sector would shrug off its present slump, citing Christchurch's rebuild and $13 billion of house repairs and rebuilding.

All up, Canterbury will bring an extra $20 billion in spending to national construction activity in the coming years and that will help propel the sector back to the same levels of activity enjoyed in 2007, they said.

Another report out this week showed how dependent the building sector has become on the state. Pacifecon, the construction report and analysis business, said of the 511 new, tendered and commencing jobs worth $5 million-plus from June to November, 235 were for the Government.

Of 80 planned upper North Island jobs, 42 are for the Government.

Of the 77 upper North Island projects which had started, 36 were for the state.

Mark Binns, Fletcher infrastructure chief executive, has emphasised the importance of Government spending because without it "we're in trouble because the private sector has no gas in the tank".

The Westpac economists predict Auckland and Christchurch house-building will be a big driver, alongside Christchurch infrastructure work and they forecast 7 per cent construction activity growth in the final quarter of this year alone. They spoke to the Canterbury Earthquake Recovery Authority, Christchurch City Council, government officials and representatives from construction, insurance and banking companies to gauge the situation which they acknowledged remained uncertain.

They found an acute shortage of Auckland housing, noting how new consents fell 77 per cent from boom to bust but population remained the highest nationally.

APNZ reported last month that six out of 11 analysts who cover Fletcher Building, the company most exposed to the construction sector here, cut their 2012 and 2013 earnings and the most pessimistic of forecasts has the company reporting a net profit of $320 million for 2011-12.

Rob Mercer at Forsyth Barr cut Fletcher Building's profit outlook for 2012 by 15 per cent and is dubious about Christchurch, although he still expects this year's $385.2 million reported profit to jump to $505.1 million by 2013 and $589.5 million a year later.

He blamed Australia's economic slowdown and ongoing weakness here and said timing for Christchurch's rebuild was an issue because of ongoing delays.

Mercer said the strongest performing segments for the six months to October were hospitals, farm buildings, shops and restaurants while the weakest areas were factories and other buildings.

Emily Behncke and John Hynd of Deutsche Bank forecast $321 million net profit for 2012, rising to $491 million then $596 million. Fletcher Building's share price has gone from $9.52 in April to around $6.16 yesterday.

John Dakin, Goodman Property Trust chief executive, said yesterday that his business, with $1 billion in industrial and office buildings, was enjoying its best phase in three years.

"The environment is really competitive and low growth from a rental point of view but in a flat economy that's no surprise and from a development point of view, we have been having our best year since 2008 with $70 million of development under way and other things in the pipeline that are looking likely," he said.

Goodman's development for Panasonic NZ at East Tamaki's Highbrook Business Park was cited by Pacifecon as one of the larger jobs. It is due to finish in February 2013.

HIGH STAKES

Construction sector:

-Employs 157,000 full-time workers.

-Accounts for 8 per cent of economy.

-Fifth-largest industry.

-Consents for year to October worth $8.5 billion.